Income inequality in the Philippines, 1961-91 : trends and factors

Abstract

Based on the Family Income and Expenditures Surveys from 1961 to 1991, we have found that except for a sharp decline in 1985, the Philippines is characterized by a high degree and fairly stable income inequality. Eight possible explanations for the aggregate trends were examined: the increasing proportion of (I) urban, (2) female-headed, (3) elderly-headed and (4) college-headed households, (5) shift of household population to skill-intensive jobs, (6) the rise in wage income inequality, (7) increasing inequality in the distribution of agricultural landholdings, and (8) introduction of new rice technology. The slight decline in inequality from 1965 to 1971 is accounted for largely by the decline in "within-group" inequalities although Factor (5) has contributed, albeit minimally. From 1971 to 1985, the remarkable improvement in inequality is contributed substantially by the decrease in "within-group" inequalities whose favorable impact on the distribution of income overwhelmed the inequality-increasing influence of Factors (1), (2), (3), and (4) and the increase in income gap between college-headed households and the zero-education household group. The increase in inequality from 1985 to 1991 is explained by the increase in "within-group" inequalities, by Factors (1), (4), and (5), by the increase in income gap between rural and urban, between professionals and agricultural, and between college-headed and zero-education households, and by Factor (6), the general rise in wage income inequalities. Factors (7) and (8) were responsible for the decline in agricultural household income inequality from 197! to 1991. The income concentrating effect of land concentration declined due to the spread of new rice technology, the implementation of land reform and the emergence of off-farm employment. The introduction of the new rice technology improved the distribution of income by increasing the amount of output accruing to hired labor and tenants vis-à-vis the landlord.